Category: Macroeconomics

New Central Bank Quarterly Bulletin

The Bank released its third quarterly bulletin of the year this week (Quarterly Bulletin (QB3 – July 2018). The outlook for growth remains favourable despite significant downside risks.  The economy is expected to grow (in GDP terms) by 4.5 per cent this year and by 4.2 per cent in 2019. Most of the impetus to growth is likely to continue coming from domestic sources with the unemployment rate averaging 4.8 per cent next year on the back of solid and sustained gains in employment.

A number of significant downside risks remain. These predominantly relate to the vulnerability of the economy to external shocks, namely Brexit, further increases in protectionist trade policies and any changes to international tax regimes (that could affect FDI flows). Domestically, while inflationary pressures remain contained, the gradual erosion of spare capacity increases the prospects of overheating. In particular, in the labour market, unemployment is fast approaching levels that in the past have triggered an acceleration in wage inflation.

Aside from the normal outlook for the economy, the Bulletin contains a number of Boxes on a diverse range of topics. These include pieces on the National Accounts, a new economic indicator, trade, inflation, credit and debit card returns and mortgage arrears. The Bulletin also has a signed article that looks at Irish Government investment, financing and the capital stock.

Boxes

  • International economic outlook (Box A – page 13)
  • Revisions to the CSO National Accounts (Box B – page 15)
  • A new monthly indicator of economic activity (Box C – page 21)
  • Irish exports and world demand (Box D – page 29)
  • Consumer prices in Ireland (Box E – page 38)

On the financing side of the economy, there are pieces on:

  • Credit and Debit Card Return (Box A – page 51)
  • Mortgage Arrears Statistics (Box B – page 59).

Signed Articles

The Bulletin includes a signed article by Hickey, Lozej and Smyth (2018), on “Irish Government Investment, Financing and the Public Capital Stock”

New Central Bank Quarterly Bulletin Published

The Central Bank published the Quarterly Bulletin (QB 2 – April 2018) today. The economy continues to perform well with the growth outlook revised upwards by close to half a percentage point to 4.5 per cent on average in 2018/19 (relative to the last set of forecasts in January). This outlook is underpinned by robust domestic demand, solid prospects for the labour market and a supportive international environment. At the same time however, a number of significant tail risks remain. These predominantly relate to the vulnerability of the economy to external shocks, namely Brexit related exposures, any increase in protectionist trade policies, changes to international tax regimes (that could affect FDI decisions) and disruptive exchange rate movements.

Some of the forecast highlights within the Bulletin include:

  • labour market – we now see the unemployment rate falling below 5 per cent to average 4.8 per cent in 2019, with close to 99,000 additional jobs being created this year and next. Annual employment growth is expected to average 2.2 per cent in 2018 and 2019, moderating from growth rates of close to 3 per cent in recent years
  • domestic spending – underlying domestic demand (which attempts to strip out much of the noise in some of the components of investment) is forecast to grow by 4.3 per cent per annum in both 2018 and 2019
  • trade – net exports are expected to support growth over the forecast horizon.
  • inflation – consumer prices were subdued last year but we expect some pick-up towards closer to 1 per cent in 2018 and 2019, as the effects of past sterling weakness unwind coupled with strong domestic demand.

Aside from the normal commentary and forecasts for the economy, the Bulletin contains Boxes on:

  • International economic outlook (Box A – page 11)
  • Sterling depreciation (Box B – page 14)
  • Leading indicators of new housing output (Box C – page 17)
  • Vacancies and wage growth (Box D – page 22).

On the financing side of the economy, there are pieces on:

  • Trends in Bank Lending to SMEs (Box A – page 35)
  • Exposures of Irish-Resident Investors to Offshore Financial Centres (Box B – page 40).

Signed Articles

The Bulletin includes two signed articles by Donnery, Fitzpatrick, Greaney, McCann and O’Keeffe (2018), on “Resolving Non-Performing Loans in Ireland 2010-2018” and one by Conefrey and McIndoe-Calder (2018) on “Where are Ireland’s Construction Workers?”

The Central Bank’s Useless Harmonised Competitiveness Indicators

This was the original title of this recent paper of mine.   Some people thought it too truculant but even Patrick Honohan – when he wanted, as Governor, to talk about competitiveness – would get his RA’s to calculate the old indicators rather than use the new ones.  To keep it eye-catching I dropped the ‘Useless’ and added ‘Pernicious or Merely Otiose?’ but then some (though not the journal, I should point out) complained that they had to reach for the dictionary!  But I think the issue is a serious one.  I am hoping that Peter Clinch at the National Competitiveness Council will take up the challenge.

Central Bank Quarterly Bulletin (QB 1 2018) published

Today, the Bank published its first Quarterly Bulletin (QB 1 – January 2018) of the year, including forecasts to 2019. The outlook remains robust with GDP forecast to grow by 4.4 and 3.9 per cent in 2018 and 2019, respectively. This forecast is underpinned by strong domestic demand and broad based employment gains.

Some of the highlights include:

  • the increasing prospect of full employment – we see the unemployment rate falling towards 5 per cent by next year with an additional 89,000 persons in employment.
  • the composition of employment is likely to differ markedly relative to the previous employment peak (in 2007). Back then, 1 in 9 persons were directly employed in construction relative to 1 in 16 expected in 2019.
  • Inflationary pressures remaining subdued but picking up from 0.7 per cent this year to 0.9 per cent in 2019. This partly reflects an unwinding of the negative impact on goods prices from recent euro/sterling exchange rate movements. (For more on exchange rate pass through, see Reddan and Rice (2017)).
  • The main risks relate to Brexit, the global trade and taxation environment as well as domestic overheating.

As regards the latter, a key question at present is the extent of remaining slack within the economy and prospects for wages and employment. Recent research within the Bank (Linehan et al., (2017) and Byrne and Conefrey (2017)) have addressed some of these issues. Further, the newly published labour market data (documented in the Bulletin) indicate that broader measures of labour supply signal that that there is still additional labour supply available. All of this suggests that while labour market conditions are tightening, there is still scope for unemployment to fall further before more significant wage pressures emerge.

Irish Economy

In terms of the Irish economy, the Bulletin contains short Boxes on:

  • international economic outlook (Box A – page 12)
  • the recovery in personal consumption expenditure (Box B – page 15)
  • trade deflators dynamics (Box C – page 21)
  • the new labour force survey (Box D – page 24).

Financing Developments

On the financing side of the economy, there are short pieces on:

  • household debt and disposable income (Box A – page 38)
  • the statistical treatment of new bank holding company structures (Box B – page 44 )
  • holders of Irish resident investment funds shares across the Euro Area (Box C – page 46).

Finally, the Bulletin also includes a signed article by Kelly and Osborne-Kinch (2018) looking at new quarterly statistics on insurance corporations.

The Irish labour market and wages

The robust performance of the Irish labour market over the past number of years offers the most tangible evidence of the recovery in the Irish economy. With unemployment falling and vacancies rising, an obvious question that arises is the extent to which the current pace of growth can be maintained. Today, colleagues in the Central Bank published a paper examining this very issue, bringing together a range of labour market indicators to assess the current state of play including prospects for wages over the short-term. We also revisit Okun’s law and the Phillips curve drawing on the latest Irish data. We hope that this research proves useful as 2017 draws to a close. The paper is titled ‘The Labour Market and Wage Growth after a Crisis’ and can also be accessed by clicking this link.